Food for Thought
I admit it. No matter how much I try, I do not have a green thumb, and woe to any houseplant (or outdoor plant, for that matter) that makes its way into my care.
With that said, you might be surprised to learn that I serve as the Atlanta Fed’s lead agriculture analyst. My duties include meeting with some pretty savvy folks in the field of agriculture. The Birmingham Branch of the Federal Reserve Bank of Atlanta hosts the Sixth District’s Agriculture Advisory Council and we recently convened the first of our two meetings of 2013. Here are some of the meeting’s highlights:
- High commodity prices have resulted in many producers having record revenues although increasing input costs continue to challenge margins.
- Agriculture producers are turning more and more to technology and other capital investments to improve production and reduce the need for manual labor. As an example, the cost to plant Miscanthus giganteus (a large, perennial grass hybrid used for biofuel production) can fall from $1,400 to $400 per acre by using a newly developed mechanical planter. Other contacts report that more advanced equipment entering the market is twice as productive as older versions, thus reducing both labor and fuel costs.
- The two most prevalent labor topics discussed were the continued importance of the guest worker program and the uncertainty associated with the costs and effects of the Affordable Care Act. Council members were heartened that the current immigration bill being debated recognizes the agriculture sector’s need for migrant labor.
- One of the biggest surprises in the conversation is that there is a real increase in the number of young people entering the field of agriculture. “They are coming back to the farm” with college degrees and enthusiasm, one Council member said, adding that these young people are “well educated, globally market savvy, and ready to take calculated risks.”
- When the discussion turned to productivity, it was enthusiastically agreed that there are still significant productivity gains to be had in agriculture. “What robotics did for manufacturing will be replicated in agriculture,” was a comment supported by all members.
- Farmland values continue to rise, supported by both low interest rates and high commodity prices. Council members noted that nonfarming investors are purchasing farmland and farmers are buying adjacent properties to expand. Because of continued uncertainties (commodity prices, low interest rates, and government agricultural policy) typical land leases, which used to be three to five years in duration, are now being let for one-year contracts.
- Overseas markets are driving up global demand for protein products, which in turn increase prices for U.S. consumers. Reduced supply may also be affecting beef prices as many cattle producers reduced their herd size because of the combination of last year’s drought and high feed prices. (Because it was so expensive to feed them, more head went to market.)
- The effect of citrus greening, a deadly disease that has done great harm to the Florida citrus industry, continues to concern Florida orange and grapefruit growers. A lot of ongoing research is dedicated to finding a genetic solution for this problem.
- Lumber prices are approaching 2004–05 levels as a result of growing demand (improving housing market and the demand for new homes) and tight supplies.
- Cotton producers are watching China’s large cotton inventory; releasing that supply into the market could have adverse effects on cotton prices.
- Issues surrounding both the use of genetically modified organisms globally and labeling requirements continue to be discussed, and resolutions to both issues will be economically important.
We will continue to reach out to our contacts in the agriculture sector, especially our Advisory Council, for their continued insight. And I’ll continue to watch, like all of you, how agriculture prices move. There’s a lot to that story.
By Teri Gafford, a Regional Economic Information Network director in the Atlanta Fed’s Birmingham Branch
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Beige Book: Southeast, U.S. Exhibiting Similar Trends
The Summary of Commentary on Current Economic Conditions by Federal Reserve District—commonly known as the Beige Book—is a report is published by the Federal Reserve eight times a year. Each Reserve Bank gathers anecdotal information on current economic conditions in its District through reports from Bank and branch directors and interviews with key business contacts, economists, market experts, and other sources. The Beige Book summarizes this information by District and sector.
Below is a comparison of the national summary and the Atlanta Fed's portion of the report, which was released on April 17:
Overall economic conditions
- National: Reports from the 12 Federal Reserve Districts suggest overall economic activity expanded at a moderate pace during the reporting period from late February to early April.
- Atlanta: Sixth District business contacts reported that economic activity continued to advance at a modest pace.
- National: Outlooks among respondents remained optimistic across sectors and Districts, with growth mostly expected to continue at the same or a slightly improved pace.
- Atlanta: Reports across sectors were generally positive, and expectations for the coming months remained optimistic.
- National: Consumer spending grew modestly, and firms in some Districts cited higher gasoline prices, expiration of the payroll tax cut, and winter weather as factors restraining sales growth.
- Atlanta: Retail reports were mixed, with some retailers citing improved sales and others feeling the pinch from a constrained consumer.
- National: Travel and tourism expanded across most reporting Districts, boosted by both business and leisure travel.
- Atlanta: Hospitality contacts reported healthy activity in both leisure and business travel.
- National: Most Districts said residential and commercial real estate improved markedly since the last report. Home prices were rising in many areas of the country.
- Atlanta: Homebuilders and brokers experienced further improvements in sales and prices of new and existing homes, and inventories continued to decline on a year-over-year basis. Commercial contractors noted a strong year to date as construction levels improved from late last year.
- National: Most Districts noted increases in manufacturing activity since the previous report.
- Atlanta: Overall, manufacturing activity remained positive as new orders and production increased.
- National: Loan demand was steady to slightly up in most Districts.
- Atlanta: Loan demand remained steady, according to bankers.
- National: Employment conditions remained unchanged or improved somewhat.
- Atlanta: Payrolls continued to grow at a tepid pace as firms remained reluctant in hiring, in part because of uncertainty over fiscal policy and health care reform.
- National: Aside from reports of increases in home prices and residential construction materials, price pressures remained mostly subdued across Districts.
- Atlanta: Prices remained stable and most firms continued to report having relatively little pricing power.
Based on these comparisons, the southeastern economy appears to exhibit trends similar to the rest of the nation.
The next Beige Book will be published June 5.
By Shalini Patel, an economic policy analysis specialist in the Atlanta Fed's research department
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A view from the region
The Atlanta Fed constructs regular reports on economic conditions in the Southeast. The most widely known is the Beige Book, which was released on October 19 through the Federal Reserve Board of Governors. This report includes input from all 12 Reserve Banks.
But we update our Bank's regional economic perspectives on a continuous basis. We do this through our Regional Economic Information Network (REIN), which helps us coordinate the inflow of economic intelligence about the region's economy into the Atlanta Fed's overall view of the economy. The input provided by our boards of directors from Atlanta and our branches plays an essential part in developing our assessment.
In surveys conducted since the release of the last Beige Book, the majority of our directors and business contacts described economic activity as expanding at a slow pace, and their outlooks remained subdued. Retail and transportation contacts noted that consumer activity was tepid and expectations for holiday sales are restrained. Tourism-related spending remained positive, although there are some indications of a deceleration in cruise line bookings. Auto sales remained strong. Homebuilders and Realtors indicated that the housing sector remains depressed, although multifamily sales and construction were bright spots. Manufacturers reported a slowdown in new orders and production.
Since one of the Federal Reserve's mandates is to maximize employment, we consistently ask our contacts about labor conditions. Over the past month we specifically asked them about their workforce plans. Overall, our business contacts and directors indicated that job growth was minimal place across much of the District. Forty-three percent of contacts said they were likely to add to their workforce, but these expectations were in many cases tied to filling vacancies or adding seasonal hires. Importantly, we did not detect much in the way of plans to reduce staffing levels, either. Just over 80 percent of business contacts said it was unlikely that they plan to eliminate any current employees. The accompanying charts highlight these findings.
We heard more reports of businesses still seeking to maximize productivity gains from current employees. Several contacts also remarked that efficiency gains continued to be achieved as firms invested more in technology. In addition, several contacts noted the ongoing trend of reducing their permanent, full-time workforce in favor of part-time help.
Concerning the Fed's other mandate—to maintain stable prices—we routinely ask businesses to tell us about any cost pressures they may be experiencing. Most contacts this period were less concerned about input cost increases, and several noted some moderation. However, they continue to feel the effects of the earlier run-up in many commodity prices. Where possible, companies are trying to pass along some of the increased costs by increasing their prices, but they have to balance that with the potential to lose business. Spotty reports continue of wages pressures that are primarily a result of a short supply of specialized skills such as IT, some professional services and trade skills, and long-haul truck drivers. Overall, wage increases appear to be modest.
By Mike Chriszt, an assistant vice president in the Atlanta Fed's research department
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Regional input cost, manufacturing indicators rise in January
The Econometrics Center at Kennesaw State University released its monthly Purchasing Managers' Index (PMI) report on manufacturers across the Sixth District this week. In January, the Southeast PMI continued its upward trend as Sixth District manufacturers hinted at a slightly brighter current economic picture and expressed an improving outlook.
Rising input costs were also reflected in the Southeast PMI's Commodity Prices component, which read 82.3 in January. Yet, as the Atlanta Fed's most recent Beige Book contribution noted:
"A majority of business contacts indicated that current cost pressures remained high, citing increasing material prices and rising labor and benefits outlays. However, most firms remained reluctant to pass input cost increases through to consumers given intense competitive pressures."
Atlanta Fed President Dennis Lockhart discussed the topic in his recent speech in Anniston, Ala.:
"And because movements of commodity and other 'headline' prices seem to be creating the impression in the popular consciousness of a growing inflation problem, I would like to give particular attention today to inflation."
Speaking specifically about his view on inflation, President Lockhart noted:
"What we're searching for is the underlying inflation trend that the FOMC [Federal Open Market Committee] statement talks about and which we want to control. And since an exact fix on the state of inflation is elusive in the short run, the best policy approach, in my opinion, is to pursue a low, but positive rate of inflation over the longer term. As a policymaker, I think of the desirable level of inflation as high enough to provide a cushion of safety against the risk of tipping into deflation but low enough to be largely irrelevant—not a consideration—in long-term decision making. For me, this number is around 2 percent.
"Notwithstanding the energy-driven jump in prices in December, underlying inflation is currently below the level that I would define as price stability. My current projection shows underlying inflation gradually rising over the next few years, putting us back into a range consistent with the 2 percent target by 2013. Key to the realization of this inflation forecast is that inflation expectations of the public remain well anchored. And for this to happen, the public has to have a good appreciation of what the central bank is trying to achieve and have adequate faith that we will achieve it."
The overall Southeast PMI as measured by our friends at KSU increased 2.5 points in January, putting the index at 58.9. The national PMI gained just a little less than the regional PMI in January (rising 2.3 points) to reach 60.8.
Both the regional and national indicators have taken a relatively sharp upward turn over the last couple of months, but the Southeast PMI remains on the heels of the national PMI, in their aggregate forms and in most underlying variables.
Though it continues to lag behind the national measure, the new orders index for manufacturers in the Southeast has seen significant upticks over the last few months. As new orders are a leading indicator, this upward movement is encouraging for future production levels. Also noted in the latest report, 63 percent of survey participants across the Southeast said they had plans to increase production levels in the next three to six months, up from 54 percent reporting plans to increase near-term production in December 2010.
Several other Federal Reserve Banks produce monthly manufacturing surveys that yielded similar results as the KSU PMI survey for January. Higher aggregate indices and particularly higher levels of new orders were noticed in the New York Fed's Empire State manufacturing survey (where data is indexed to 0 instead of 50), and the Philadelphia Fed's manufacturing survey, where the new orders index jumped 13 points. Future expectations for new orders were also higher in most regional surveys. Half of respondents in the Kansas City Fed's manufacturing survey indicated they expect new orders to continue increasing over the next six months.
By Mike Chriszt, an assistant vice president in the Atlanta Fed's research department,
Mark Carter, an Atlanta Fed research analyst
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